Recession Now, Trouble Ahead

There was little cheer as TIME'S Board of Economists met last week to analyze President Ford's proposals and assess prospects of the U.S. economy for the year ahead. All but one of the nine board members agreed without doubt that the nation is in recession, with little hope for recovery before late next year. Walter W. Heller of the University of Minnesota, a former chairman of the Council of Economic Advisers, went further than most, yet few disagreed with the thrust of his thinking: "We are driving this economy into very deep recession--the worst since the Great Depression."

To most of the economists, the Ford Administration's economic program offered little uplift. In general, they applauded Ford's recommendations for, among other things, increasing investment capital and food supplies. But the majority dismissed the program as no more than a tiny first step at best, lacking force to arrest inflation, curb unemployment, stimulate growth and promote recovery. David L. Grove, chief economist of IBM, characterized the program as tepid orthodoxy, more of "the oldtime religion with special dispensation for the poor."

Beryl W. Sprinkel, a monetarist and fiscal conservative who is senior vice president of Chicago's Harris Trust and Savings Bank, was the board's strongest supporter of the Administration's current economic plan. He praised Ford's avoidance of controls and stress on spending prudence. Sprinkel was echoed by Murray Weidenbaum, former Assistant U.S. Treasury Secretary and now a professor at Washington University in St. Louis, who is the board's newest member. Republican Weidenbaum favored Ford's proposals to stimulate investment and eliminate regulatory laws that increase prices, yet he regarded the WIN button campaign as juvenile hoopla and jested that the next logical step would be "pom-pom girls and cheerleaders."

Though Sprinkel alone took exception to the majority's view that the U.S. is in recession, he agrees that current conditions almost certainly point to a recession by next year.

But for now, he feels, they are not comparable to the five recessions since World War II.

For one thing, basic industries--steel, paper, chemicals, aluminum--are pulsing along at capacity production levels, paced by shortages and soaring demand.

The economists' outlook for the next year is not encouraging:

INFLATION will continue steaming along at double-digit levels through the year's first quarter, then begin tapering to as low as 7% or 8% by year's end, as measured by the Consumer Price Index. A main reason will be economic slowdown in other countries, as well as a moderation in commodity prices. Robert R. Nathan, who heads an economic consulting firm in Washington, feels, however, that an effective controls program could reduce inflation by three or four percentage points from current levels. In the absence of tougher Government controls, Joseph A. Pechman of the Brookings Institution sees double-digit inflation continuing well into the second quarter. Pechman raised the point and others agreed that businessmen do not believe Ford when he says that price controls will not be imposed. To beat controls, many businessmen are jacking up prices while they can to achieve higher "base levels." Arthur Okun of the Brookings Institution said: "Everybody is allowing for everything that could happen, plus a little bit more."

REAL GROWTH will lag. The economists expect it to be slightly negative or flat in the first half. There should be an upturn toward the end of the year created by increases in consumer spending and somewhat improved conditions in housing. Nevertheless, 1975 will probably mark the second consecutive year of a decline in output, a lull unmatched in a generation.

UNEMPLOYMENT will rise to 7% by midsummer, a frightening consensus, unless the Administration moves more decisively. Yet the prevailing view is that action will be taken long before the 7% mark is reached. To battle recession, Ford may have to give more tax relief to lower-income groups and expand the public service employment program beyond the limited scheme announced last week.

WAGES, in the absence of controls, will continue spiraling. Workers everywhere will try to keep up with soaring food prices and the aftereffects of heightened fuel prices, which seem now to have peaked, yet continue to pull up other prices. Okun sees some of the biggest increases coming in nonunion sectors, as employers voluntarily pay more out of a sense of obligation to inflation-wounded workers and then pass the costs on to customers. In any event, says Pechman, some form of reasonable restraint is needed now in the form of direct and selective intervention by Government, or by next summer "we are going to have general wage and price controls" enforced by a huge OPA-style bureaucracy such as existed during World War II.

Most of the economists predict that corporate profits will decline through 1975's first half. Heller foresees no near-term surge in consumer spending.

Yet the economists discerned some hopeful signs. Okun, for example, foresees reduced capital demands in some areas, thus helping to alleviate capital shortages. Even the energy squeeze probably means that less money will be spent on highways and refineries. But the U.S. economy in many ways faces its severest test since the Depression, and its recovery to robust health more than ever rests on discipline and patience and a finely tuned balance between needs of public and private sectors. Speaking of the crusade against the self-destructive force of inflation, Okun said: "I think if we fail, that is the end of this kind of a system."

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